Indonesia - Infrastructure Reconstruction Enabling Project : restructuring

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 55075-ID RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE INFRASTRUCTURE RECONSTRUCTION ENABLING PROJECT (IREP) FOR ACEH AND NIAS MDF GRANT TF056894 TO THE REPUBLIC OF INDONESIA June 28, 2010 Indonesia Sustainable Development Unit East Asia and the Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.  INDONESIA INFRASTRUCTURE RECONSTRUCTION ENABLING PROJECT EAST ASIA AND PACIFIC REGION EASIN 1. Basic Information Project ID & Name P100218: Infrastructure Reconstruction Enabling Project Country Indonesia Task Team Leader Suhail J. S. Jme'an Sector Manager/Director Franz Drees-Gross/John A. Roome Country Director Joachim von Amsberg Original RVP Approval Date 06/30/2006 Original Closing Date: 10/31/2009 Current Closing Date 06/30/2010 Proposed Closing Date 12/31/2011 EA Category B-Partial Assessment Revised EA Category B-Partial Assessment-Partial Assessment EA Completion Date 03/24/2006 Revised EA Completion Date NA 2. Revised Financing Plan (US$) Source Original Revised BORR 0.00 0.00 MDF 42.00 42.00 Total 42.00 42.00 3. Borrower Organization Department Location 4. Implementing Agency Organization Department Location Ministry of Public Works PMU Jakarta, Indonesia 2 5. Disbursement Estimates (US$m) Actual amount disbursed as of 06/21/2010 Fiscal Year Annual Cumulative 2007 2.91 2.91 2008 9.26 12.17 2009 5.36 17.80 2010 10.33 28.13 Total 28.13 Estimates (US$m) 2011 2012 10.00 38.13 3.87 42.00 Total 42.00 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured project trigger any new safeguard policies? If yes, please select N from the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The objective of the project is to support the Recipient's strategy for infrastructure reconstruction by providing high quality technical assistance in services in infrastructure program management, planning, design, construction management, quality management and program monitoring. 7b. Revised Project Development Objectives/Outcomes [if applicable] N.A. 3  Extension of Closing Date INDONESIA -- INFRASTRUCTURE RECONSTRUCTION ENABLING PROGRAM (IREP) (P100218, TF056894) 1. This paper seeks approval of the Regional Vice President (RVP) to extend the closing date for the Infrastructure Reconstruction Enabling Program (IREP) until December 31, 2011. 2. IREP is financed through a grant of US$42.0 million from the Multi-Donor Trust Fund for Aceh and North Sumatra (MDF). The date of the grant agreement is July 13, 2006. The original closing date was October 31, 2009, and has already been extended once until June 30, 2010. The proposed extension is for a cumulative period of 26 months, and requires approval of the RVP under BP13.30. 3. The Government of Indonesia (GoI) sent a formal request (Annex 1) to extend the closing dates for both the Infrastructure Reconstruction Financing Facility (IRFF) (P101785, TF057657) project and IREP to December 31, 2011. The request to extend the closing date for IRFF was approved by the Country Director since the cumulative extension is less than 24 months (Annex 2). 4. IREP's main objective is to enable the implementation of the IRFF by financing the technical assistance needed to perform the project implementation management activities including: procurement; financial management; quality control and quality assurance; safeguards framework assurance and monitoring; implementation monitoring; and the design and construction supervision of all activities under the IRFF. The IREP and IRFF projects are designed to go hand-in-hand. 5. IREP will also be used to finance the initial construction supervision cost for the proposed additional financing for the IRFF (IRFF-AF) project for which the negotiations have recently concluded and it is expected that the final package will be submitted to the RVP for approval before June 30, 2010. Because of this connection there was a condition of negotiation of the IRFF-AF that the GoI request the extension of IREP. 6. IREP's PDO and overall IP ratings are moderately satisfactory. There are no outstanding audit reports for both IREP and IRFF projects and the most recent audits for 2008 were unqualified. The project team and the project implementing agencies have agreed on an implementation schedule to complete all project works ahead of the proposed new closing date and the project's PDO remains achievable within that timeframe. 7. An INT investigation of IREP substantiated allegations of fraud on one of the IREP contracts (IPM contract). INT completed the investigation in June 2009 and also 4 provided referrals to the relevant authorities. The case is currently being prepared for sanctions. Ineligible expenditures associated with the IPM contract have been duly returned. The IPM contract was allowed to expire on March 31, 2010. As an alternative arrangement to the IPM consultant, a group of individual consultants, cleared by the Bank, were hired to carry out the IPM functions. The Task Team is satisfied with the new arrangements to replace the IPM consultant. INT is also investigating other contracts under IREP and IRFF. 8. Financial management arrangements especially with respect to payment documentation, verification, delayed submission of financial reports and audit reports have been strengthened to overcome past weaknesses. Since mid June 2009, the PMU has clear instructions for the FM consultant (IREP#5 contract) to review and verify all payment requests prior to submission for payment. The FM consultant should continue to perform such review and verification, including getting confirmations from third parties on a small sample to ensure that the payments are genuine. No payments will be made unless invoices are clearly verified by the FM consultant. In addition, the FM consultant is expected to continue conducting regular internal control review at the PIUs level. 9. Status of IRRF. Implementation of the IRFF project experienced substantial delays related to: (i) the overwhelming size of destruction caused by the 2004 tsunami and subsequent earthquake which required huge efforts to complete the damage assessment and design the reconstruction program; (ii) difficult working conditions in Aceh and North Sumatra; (iii) complicated co-financing arrangements with BRR; (iv) lengthy negotiations with the GoI to agree on satisfactory transition arrangements after the closure of BRR mid-stream of project implementation; (iv) weak capacity of local government; (v) difficulties by consultants and contractors to fully mobilize appropriate skills early on during project implementation; (vi) endemic delays in budget (DIPA) approvals; and (viii) complex flow of funds arrangements. In spite of these difficulties, currently, the PDO and IP ratings for the IRFF are moderately satisfactory. The revised IRFF cost is US$207.3 million -- US$100 million from the MDF grant and US$107.3 from the government -- and disbursements are at US$68.7 million. 10. Out of 56 sub-projects under IRFF, 45 sub-projects are completed, while 7 sub- projects (US$75.45 million) are above 50 percent physical progress and 1 sub-project (US$6.44 million) is below 50 percent physical progress. Moreover, due to the transition in the implementation arrangement and the strict application of a fixed budget policy adopted by BRR (the previous implementing agency) of not exceeding the signed contract value regardless of approved changes in the contract, some sub-projects have been left incomplete. The incomplete works have been appraised and packaged under the so called "Gaps" program (about US$13m). There are sufficient funds remaining funds in the IRFF grant to finance the "Gaps" as well as complete ongoing sub-projects. The Task Team is satisfied that all IRFF works including the "Gaps" would be completed by December 30, 2011. 11. MDF Secretariat has agreed to provide supervision budget (BB) for both IRFF and IREP for FY2011 and FY2012. 5 12. Request for Approval. Extending the closing date of IREP to coincide with IRFF's new closing date is needed to continue providing implementation support towards satisfactory completion of all remaining works and achievement of the development objectives of the Aceh reconstruction. Original memo from CD to the RVP dated 06.09/2010 was cleared by LOA, TACT, CTRTF, CTRDM, MDF, LEG and SM. 6 Annex 1: Request by the Government of Indonesia 7 8  Annex 2: Approval of the CD to Extend IRFF closing date Mr. Maurin Sitorus Director Directorate General of Debt Management Ministry of Finance Prijadi Praptosuhardjo building II, 3rd Floor Jalan Lapangan Banteng Timur 2-4 Jakarta Pusat 10710 Re: Multi-Donor Trust Fund for Aceh and North Sumatra Infrastructure Reconstruction Enabling Project (IREP) TF056894 for Ache and Nias- Extension of Grant Closing Date Dear Mr. Sitorus, Pursuant to the letter dated May 12, 2010 requesting the International Development Association (the Association) to extend the closing date of the grant, I am pleased to inform you that the Association has established December 31, 2011 as the later date for purposes of Section IV (B) 2 of Schedule 2 of the Grant Agreement between the Republic of Indonesia and the Association, dated July 13, 2006 as amended through April 15, 2009. Furthermore, with respect to paragraph (ii) of Section I of the letter, dated January 15, 2007 on "Additional Instructions